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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: rkral who wrote (119888)	6/5/2002 12:28:19 PM
From: Stock Farmer	Read Replies (1) \| Respond to of 152472

Addressing substance, you wrote In brief, I claimed that neither SFAS 123, nor the Black-Scholes eq'n, tries to account for the value of the option at some future time. Both only try to value the option on the grant date. Huh??? Ron, you are the mathematician. You should recognize Black-Scholes as an expectation value calculation based on lognormal probability distribution of prices. What precisely do you think this is an expectation value of? When you hold an option, there's a probability of it being worth $100. Namely that the market price will be $100 more than the strike price. There's also a probability of being worth zero when the market price is less than strike price. And a whole distribution of worths and probabilities in between. The Black-Scholes equation merely computes the probability weighted sum of each of these possible worths (well, actually it's an integral over a continuous distribution of worths) at some time in the future, discounted back to present dollars. So that "value of the option on the grant date" is COMPUTED FROM a suite of expected values at some future time, namely when the option is exercised! "Both only try to value the option on the grant date", yes. And they try to compute this value based on an expectation value of the worth (value) at exercise. Or in other words, both try to account for (or, in other words, estimate) the value of the option at some future time. So claiming "neither... .. tries to account for the value of the option at some future time." is quite incorrect. Look, the company is not estimating what an unexercised stock option is worth while it is being held. That's pointless. It's estimating what the option will cost when it is exercised and calling this it's value. Not more complex than that. It's really simple. There's an ACTUAL value (difference between strike price and market price when exercised), and an ESTIMATED value (black scholes, sfas 123...) which is merely estimating what this future actual value can reasonably be expected to be and discounting it to present value. On style. Seems I torqued your nose too far to the right. I really do happen to think you are a smart guy. So I was just shaking your tree based on your shaken-understanding post. It was supposed to be in fun. No harm intended. John